Piper's Domestic Subscriber Survey Shows Netflix Has Pricing Power

Piper Jaffray’s domestic subscriber survey suggests the “un-grandfathering” process will have minimal impact on Netflix, Inc. NFLX's U.S. subscribers.

Michael J. Olson maintained an Overweight rating on the company, with a price target of $122.

What The Survey Showed

Following a survey of 1,500 U.S. Netflix subscribers, Olson mentioned that only 3–4 percent were expected to leave the service following a price increase. This would mean a loss of 2–3 percent of the worldwide subscriber base.

“Regarding future price increases, while we wouldn't expect another domestic price increase in the next two years, it appears Netflix has runway to push pricing higher,” the analyst stated.

Netflix is transitioning its long-term subscribers to $9.99 per month in 2016.

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Limited Impact Of Un-Grandfathering

Olson believes the larger impact on the stock from the un-grandfathering could simply be that it casts a shadow on the stock due to investor concerns regarding the potential negative impact on churn in the coming months.

According to the Piper Jaffray report, “Despite the recent price increase, more than half of domestic Netflix subscribers would be willing to pay significantly more to remain subscribers of the service.”

The survey revealed that 55 percent of the subscribers would not cancel their subscription until the price reached above $15 per month, while 15 percent of the total subscribers indicated that they would not cancel until the price crossed more than $20 per month.

In addition, 5 percent stated that they would only cancel their subscription is the price was significantly higher than $20 per month.

On the other hand, Netflix has indicated it intends to create a global footprint through 2016. Olson believes if some of the international launches were less expensive, the company might be able to see positive international margin contribution in 2017.

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